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Posted: December 16, 2010

Things are looking up

So says the Vectra Bank Colordao Small Business Index

Jeff Thredgold

The Vectra Bank Colorado Small Business Index for Colorado measured 105.8 in November, up from a revised 103.6 in October, reflecting increased opportunities for businesses to hire workers and a gradually improving state economy.

Colorado's unemployment rate was estimated at 8.4 percent in the latest month, up from the prior month's 8.2 percent rate. Total employment fell by 12,200 jobs during the past 12 months. Historically high unemployment rates within Colorado and the Intermountain area have contributed to weak retail sales growth, hurting the state's and the region's small businesses.

Vectra Bank's corporate economist, Jeff Thredgold, is cautiously optimistic, however, saying, "Colorado's year-over-year (past 12 months) measurement of job losses has declined for 10 consecutive months. This strongly suggests that the state's transition from painful recession to modest economic growth should take place during 2011's first quarter."

Nationally, the economy added an estimated 39,000 net new jobs in November, much worse than expectations of a 150,000 job rise. The addition of 50,000 private-sector jobs during the month was also much weaker than expected. Better news saw job data of September and October revised to show 38,000 more jobs than initially reported. The U.S. unemployment rate rose to 9.8 percent in November, following three consecutive months at 9.6 percent.

HIGH REGIONAL UNEMPLOYMENT
Severe U.S. and global economic weakness during 2008 and much of 2009 pushed unemployment rates sharply higher for states within the Intermountain area, as well as across the nation. Much higher unemployment rates lead to lesser income creation, placing a damper on retail spending. All 50 states had a higher unemployment rate at the end of 2009 than at the end of 2008. All 50 states had fewer workers at the end of 2009, versus the end of 2008.

The Great Recession officially ran from December 2007 to June 2009, a period of 18 months. It was the longest, the deepest, the most pervasive, and the most costly recession since the Great Depression. The Great Recession, resulting initially from severe housing sector weakness and a freeze-up of domestic and global credit markets, ravaged employment across the nation. U.S. job losses during 2008 and 2009 totaled more than 8 million.

Unemployment rates within the Intermountain area are at the highest levels in a generation (see chart). Such rates three years ago ranged between 2.5 percent and 4.5 percent. A return of U.S. and global economic growth has now led Arizona, New Mexico, Wyoming and Utah back to modest levels of net job creation during the most recent 12-month period. Colorado and Idaho will soon likely transition to slight gains over the latest 12-month period, while Nevada continues to report job losses. The unemployment rate in most states has risen during the past 12 months as news of better economic performance has led thousands of people to re-enter the labor force in search of a job. Unless and until they are hired, they are now counted as unemployed.

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The Colorado unemployment rate and year-over-year gains or losses in employment are key components of the Colorado Small Business Index. The economic performance of the region, the nation and the global community are also components of the Index.

The Vectra Bank Colorado Small Business Index for Colorado was 105.8 in November, up from a revised 103.6 in October. The Index measures business conditions from the viewpoint of the Colorado small business owner or manager.  

A higher Index number is associated with more favorable business conditions for Colorado's small businesses. The Index uses 100.0 for calendar year 1997 as its base year. The Index also includes revisions to various historical and new forecast components as they become available.

The U.S. Small Business Index was 115.2 in November, up from a revised 113.7 in October.

IN COLORADO
The Colorado unemployment rate-the most heavily weighted component of the Vectra Bank Colorado Small Business Index for Colorado-was estimated at 8.4 percent in the most recent month, up from the 8.2 percent rate of the prior month. The 8.4 percent rate compares to the 7.5 percent rate 12 months ago. A higher Colorado jobless rate is a positive contributor to the Index as it suggests increased access to labor for small businesses. Other associated factors typically tied to a higher unemployment rate, such as lesser job creation, lesser income gains and lower retail sales, pull the Index lower.

The state's unemployment rate averaged 7.7 percent during 2009, 4.9 percent in 2008, 3.9 percent in 2007, and 4.4 percent in 2006. Colorado's jobless rate averaged 4.6 percent between 1990 and 2005.

The last 12 months have seen an estimated decline in Colorado employment of 12,200 jobs (down 0.5 percent), which compares to a revised loss of 20,700 jobs in the prior year-over-year period. Colorado lost 106,300 jobs in 2009, added 19,000 jobs in 2008, added 52,200 jobs in 2007, and added 53,100 jobs in 2006.

These job totals compare to gains averaging 46,500 net new jobs annually between 1990 and 2005. More recently, job declines, leading to slower income creation and weaker retail sales, have had a negative impact upon Colorado small businesses and therefore the Index.

NATIONAL EMPLOYMENT
The U.S. Department of Labor reported a net gain of 39,000 jobs in November, much weaker than the 150,000 net gain expected. The rise of 50,000 jobs in the private sector was also weaker than expectations. Better news saw September and October job data revised to show the addition of 38,000 more jobs than originally reported.

The U.S. unemployment rate rose to 9.8 percent in November, following three consecutive months at 9.6 percent. The current 9.8 percent jobless rate compares to the 10.0 percent rate of one year ago and greatly exceeds the 6.9 percent rate of November 2008.

Goods-producing employment fell by 15,000 jobs in November. Manufacturing employment fell by 13,000 positions, while construction lost 5,000 jobs. Mining and logging employment rose by 3,000 jobs.

Private-sector service-providing employment rose in November by 65,000 positions. The professional & business services sector added 53,000 jobs, while the leisure & hospitality sector added 11,000 jobs. The education & health services sector added 30,000 positions in November, while retail trade lost 28,000 jobs. Overall government employment fell by 11,000 jobs during the month.

The U.S. economy suffered a net decline of 3.6 million jobs during 2008, the worst year since 1945. The loss of 4.8 million jobs during 2009 easily surpassed the 2008 total. The most recent recession was the first since the Great Depression to see all net job gains of the prior expansion eliminated.

The American economy has now added an estimated 951,000 net new jobs this year, or 86,000 per month. Roughly 130,000 net new jobs need to be added monthly just to meet the needs of a rising population and keep the unemployment rate stable.
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The Tea Leaf is a weekly economic and financial update by Jeff Thredgold, economist for Vectra Bank Colorado. He has been writing an economic update every week for the past 31 years and is the only economist in the world to have received the designation of CSP, or Certified Speaking Professional. Republished with permission from the Tea Leaf by Jeff Thredgold, whose site address is www.thredgold.com/html/leaf.html.
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